PARIS --- The unit cost of the seven largest French weapon systems has risen by an average of 33.9 percent since their launch, according to the 2010 annual report of France’s national audit court, the Cour des Comptes. However, most of the increase is due to large cuts in production numbers prompted by military downsizing at the end of the Cold War, according to the defense ministry’s rebuttal, and not to mismanagement or inefficiency.

France’s share of the Franco-German program to develop and produce the Tiger attack helicopter, for example, was initially estimated at 8.89 billion euros for 215 helicopters, but although the number of helicopters bought by France was subsequently reduced to 80 its share of the program will now cost 5.89 billion euros. This led the Tiger’s unit price to nearly double, from 41.5 million euros to 73.7 million euros, the Court reported.

But according to the dissenting brief provided by the French Ministry of Defence and included in the Court’s report, unit production costs for the Tiger have increased by only 51.8%, from 33.5 million to 50.8 million, mainly because the cut in the production run. This, the ministry maintains, shows price inflation is mostly attributable to production cuts rather than to haphazard management or irregular funding. It adds that inflation is aggravated because early production items are much more expensive than late-production items that end up being cut.

In its overview of defense procurement issues, the Court identifies the same reasons for cost over-runs and schedule slippages that national auditors have found in the United States, Britain, Australia and other countries. In this respect, at least, there is no “French exception.”

These reasons include, in no particular order:
-- insufficient preparatory work and technological maturity at program launch;
-- insufficient and irregular funding;
-- over-ambitious technical specifications;
-- specification changes during development;
-- postponements due to non-technical issues, especially for international programs;
-- under-estimating development, production and sustainment costs;
-- a preference for multipurpose, expensive weapons rather than simpler, cheaper ones capable of a single mission; and
-- unsatisfactory contractual arrangements.

The audit report and the dissenting figures provided by the defense ministry also offer a rare glimpse of the actual cost of French weapons. Each Rafale fighter, the ministry says, now costs 101.1 million euros to produce, compared to an original estimate of 96.6 million (all prices are expressed in 2009 prices). This works out to an increase of only 4.7% over initial estimates, the ministry says, but given that the program was launched in the mid-1980s such a claim appears surprising at best.

The MoD figure is almost one-third less than the 142.3 million euro price estimated by the Court, which arrived at its own figure by dividing the program’s current cost by the reduced number of units to be procured. No indications are provided as to how the defense ministry’s own cost figures were computed.

Updated March 18, 2010In its 2009 accounts, Dassault said it had an order backlog of 12.32 billion euros, of which 33% (or 4.065 billion euros) were French military orders for Rafale. As the company had a backlog of 98 Rafales, one can infer that Dassault bills the French MoD an average of about 41.5 million euros for each Rafale.
This is not the total cost of the aircraft, however.
Company CEO Charles Edelstenne however noted that much of the aircraft's components and systems (engines, avionics, radar, ejection seat, etc.) are government-furnished equipment ordered from other suppliers (Snecma, Thales, etc.), and that these costs come in addition to those billed by Dassault. Finally, these values exclude value-added tax and weapons.

The other current unit production prices provided in the Court’s report, and contested by the defense ministry, include (see table above for details; all prices in 2009 euros):

The Court did not report on the A400M’s costs, as these are being renegotiated between partner governments and industry. However, in a detailed analysis of the A400M contract and its development, the report reveals some previously unknown aspects of the program:

-- France had only earmarked 91.5 million euros for the A400M in its 1997-2002 military spending blueprint, and those funds were specifically budgeted for 2002. “This is one of the reasons why the idea of a global contract was retained in 1998. Thus, France committed to spending over 5 billion euros to develop and buy 50 aircraft when practically no money was budgeted for this expenditure.”

-- Industry initially budgeted 84 million euros for a risk reduction phase. This was refused by governments (with the exception of France, which alone approved 8.4 million euros) even though, with the benefit of hindsight, it might have helped to avoid some of the problems encountered during the development phase.

-- A global contract covering both development and production has advantages for customer governments, but ultimately became the source of considerable difficulties because it was probably not appropriate for a program which was required to develop a turboprop engine with unprecedented performance in the Western world, and whose avionics are particularly complex.

-- OCCAr (Organisme Conjoint pour la Coopération dans le domaine de l’ARmement), agreed to cap penalties for late delivery for some of the programs that it manages (including the A400M and Tiger), thereby weakening its capacity to react and to negotiate with industry.

-- Germany insisted on particularly demanding performance for the A400M’s navigation system, the Court notes, its implication being that this needlessly complicated development and added to its overall cost.

-- Responding to the Court’s assertion that the A400M’s specification was too ambitious, the French defense ministry observed that “the initial requirement was for a single aircraft suitable for both strategic transport missions (high subsonic speed at medium and high altitudes, with a good payload), and tactical transport (landing on unprepared strips, cargo and personnel drops and extraction, low-level navigation) missions. Given this basic and overriding requirement, the military performance requirements were not excessive.”